The $1 trillion digital asset market is facing a crisis similar to the 2008 financial crash, according to Binance CEO Changpeng Zhao, who warned that FTX’s troubles could see more companies failing in the coming weeks .
Zhao, founder of the world’s largest digital asset exchange, said the full impact of the meltdown on rival crypto exchange FTX has yet to be felt. At a conference in Indonesia, he said the global financial crisis was “probably an accurate analogy” to this week’s events.
“If FTX falls, we will see cascading effects,” Zhao said. “Especially those close to the FTX ecosystem will be negatively impacted.”
The comments come as crypto traders fear more contagion after a bid by Zhao to buy FTX earlier this week fell apart, leaving one of the most prominent cryptocurrency exchanges on the brink of collapse. Its failure would also deal a blow to blue-chip investors who had injected equity into the group, including venture capital firm Sequoia and Japan’s SoftBank.
Bitcoin, the largest cryptocurrency, has tumbled 17 percent over the past five days, hitting a two-year low amid tumultuous negotiations between Binance and FTX CEO Sam Bankman-Fried.
Bankman-Fried has apologized for the liquidity crisis at FTX, but has not detailed the causes.
“This lack of transparency is what will make every single trader and investor very suspicious going forward,” said Anatoly Crachilov, chief executive of Nickel Digital Asset Management.
Zhao also cast doubt on a deal struck by FTX to buy assets from another crypto lender, Voyager, out of bankruptcy, saying FTX “obviously . . . don’t have the money” for the $1.4 billion transaction.
“Some other projects will find themselves in similar situations. I think it will take a few weeks for most of them to come out,” Zhao said.
Genesis, a major crypto trading company, said its derivatives business was stuck for about $175 million on the frozen exchange. The company said the funds are “not essential to our business” and will not impact its market-making or trading functions.
But the Binance CEO was confident that the crypto sector would eventually recover. “The market will heal itself,” Zhao said.
https://www.ft.com/content/0fa4f3b6-213c-4e76-bcd9-fcf184a264a2 Binance CEO Changpeng Zhao warns of a “cascading” crypto crisis